LEASING

It is a financial arrangement that provides a firm with the advantage of using an asset without owning it. It is an agreement where by the Lessor conveys to the Lessee, in turn for rent, the right to use an asset for an agreed period of time. Lessor is a person who conveys to another person (Lessee) the right to use an asset in consideration for payment of periodical rent, under a lease agreement. Lessee is a person who obtains from the Lessor, the right to uses the asset for a periodical rental payment for an agreed period of time.

 

1. financial lease is a contract involving payment over an obligatory period, of specified sums sufficient in total to amortize the capital outlay, besides giving some profits to the lessor. Here the lessee is responsible for the maintenance of asset leased. Thus it is a lease where the entire risks and rewards incident to the ownership of asset is transferred. Title may or may not be eventually transferred.
2.  Full Payout Lease the lessor recovers the full value of the leased asset, within the period of lease, by way of lease rentals and the residual value.
3.  True Lease typical tax benefits, such as investment tax credit, depreciation tax shields etc are offered to the lessor.
4.  Operating Lease the asset is not fully amortized during the non- cancelable period of the lease, where by the lessor does not depend on the lease rentals or profit. It is basically an economic service for a short term where the lease will be cancelable at short notice by the lessee.
5. Net Lease A type of lease where by the lessor is not considered about the repairs and maintenance of the leased asset is known as Net Lease.
6. Conveyance Lease is another type where the lease will be for a very long tenure applicable to immovable properties.
7. Leveraged Lease When a part or whole part of the financial requirement involved in a lease is arranged with the help of a financier, it takes the form of Leveraged Lease.
8.  Sale and Lease Back system, the owner of an asset sells it to the lessor, and get backs the assets under the lease agreement which has an effect of providing immediate free finance to the selling company, the lessee.
9. Consumer Leasing. Leasing of consumer durables is called as Consumer Leasing.
10. Balloon Leasing. A type of lease, which has zero residual value at the end of the lease period, is called as Balloon Leasing. 
11. Wrap Leasing The lessee further subleases the asset to the end user, retaining a fee and share of the residual value, is called as Wrap Leasing.
12. Swap Leasing In Swap Leasing, the lessee is allowed to exchange equipment leased out whenever the original asset have to be sent to the lessor for some repair or maintenance.
13.   Open-ended Leasing: In Open-ended Leasing the lessee guarantees that the lessor will realize a minimum value at the time of end of the lease period from the sale of the asset. 
14. Import Leasing.  The leasing of imported capital goods is known as Import Leasing.
15. Cross-boarder Leasing.  A type of lease where the lessor in one country leases out assets to a lessee in another country is known as Cross-boarder Leasing.
16. International Leasing. When a leasing company is operated in different countries through its branches, it is a case of International Leasing.
17. Double-dip Lease. When there is advantage of depreciation tax benefits twice, depending on the taxation laws of two countries it is called as Double-dip Lease. 
18. Triple-dip Lease. When it is available under three different jurisdictions for a single use of asset leased out it is called as Triple-dip Lease.

Advantages of Leasing

1. Tax benefits for the receipt of lease rentals
2. High return on equity because of better leveraging
3. Absorption of obsolescence risks by the lessor
4. Efficient use of funds by the lessee
5. Leasing is an off-balance sheet item for the lessee contributing better ROI
6. Provides better liquidity especially in case of sale and lease-back.
7. Leasing is a highly flexible and cheaper source of finance for the lessee
8. Provides cent percentage of finance for the lessee by avoiding initial cash outlay.
9. Ideal mode of asset acquisition especially for a non-profit organization
10. No disturbance to the normal line of credit.